Unlike their counterparts in the U.S. and Europe, Canadian bank regulators haven’t conducted public stress tests of the country’s big banks because of the limitations of these sorts of exercises, says the head of the Office of the Superintendent of Financial Institutions (OSFI)

Speaking to the International Finance Club of Montreal Tuesday, Superintendent of Financial Institutions Jeremy Rudin said that while OSFI sees “great value” in stress testing banks “because they help senior management to measure and understand the risks facing their banks and the financial system”, and help determine whether capital requirements are adequate, the federal regulator has not subjected the Canadian banks to common public stress tests as regulators in the U.S. and Europe have recently done.

Rudin set out several reasons for this, including the limitations of subjecting banks to a single stress scenario. He noted that “every bank has different exposures, so a single scenario does not provide a comparable test”; also, he noted that banks need to be ready for a variety of negative scenarios, not just one. And, he said that this sort of public stress test “would inject a public relations element into the exercise, both for the banks and for the regulator, which could reduce its value as a risk management tool.”

Apart from OSFI’s approach to stress testing, Rudin also discussed the ongoing work at the global level to enhance capital adequacy rules. He said that OSFI is supportive of efforts to reduce unjustifiable differences in risk weights when calculating capital standards; and, he said that it is “prepared to consider new restrictions on the use of models when the data on severe losses are limited.”

He also noted that the Dept. of Finance is leading an initiative to develop a loss-absorbency requirement for systemically important banks that goes beyond the existing capital requirements, designed to ensure that these sorts of banks don’t require taxpayer bailouts, or pose a threat to financial stability.

Finally, he also said that OSFI supports efforts to create minimum capital standards for insurers. Rudin noted that the International Association of Insurance Supervisors (IAIS) is currently working on a global solvability standard for internationally active insurance companies. “We applaud its efforts,” he said. “This will facilitate international comparisons of insurance company capital and, we hope, eventually lead to a level playing field for all.”